Ethical banking: Simply ‘Moving Your Money’ isn’t enough

Sian Williams explains that simply moving your money from a high street bank to a co-operative or credit union isn’t enough to support ethical banking

Last week the new Barclays chief, Anthony Jenkins, called on banks to become more socially useful and to rebuild their customers’ trust as revelations of greed, risk and fraud continue four years after the financial meltdown.

Until that day arrives, however, there are already banking service providers that are just that; trustworthy and socially useful. They’re called credit unions.

Credit unions usually operate in areas with deprivation providing banking services to those shunned by high street banks and at risk of being ripped off by high interest lenders because of bad credit or a low income.

But on the back of the ongoing furore and a national campaign to ‘move your money’ they have started to appeal to a new demographic protesting at their bank’s behaviour or attracted to a more ethical operation devoid of investments, shareholders and bonuses.

Grenville Bingham, vice president at the London Community Credit Union (LCCU) in east London, said: “We can’t invest and do the same kind of nonsense that banks do. It’s the way we are constituted. What we do is hold accounts in very secure and sensible places like the Co-op where we get a decent return on the members’ money. We are a simple operation that can be run by communities.”

But at a credit union open day in Hackney this weekend, Sian Williams, head of financial inclusion at Toynbee Hall, a charitable trust and think tank tackling poverty and social inclusion, explained to an attentive crowd that just moving your money to a credit union or co-operative isn’t enough if you want to help effect change.

She said: “[Closing] your account doesn’t mean a thing [to the banks] unless everyone moves their money, but that’s not going to happen, so you need to do the next step and explain [in a letter] why you’re moving. You can list all the macro economic things like the LIBOR scandal, but that’s not enough, they hear that all the time. You need to say what that bank could have done differently to keep you as an individual. You need to say that you [the bank] need to behave in such a way that I can trust you, don’t just jump on some band wagon.”

She said if people really want to support ethical banking they need to help credit unions provide those at the lower end of the economic ladder with the basic banking services the rest of us take for granted.

Having a bad credit rating or a low income can mean paying exorbitant rates on loans, being refused a bank account and missing out on direct-debit discounts or being hammered for going overdrawn.

But to further their aims, which includes opening branches on high streets to squeeze out the loan sharks and attract customers from the big five, credit unions need middle-class money.

Williams said: “If the only people joining the credit union are on very low incomes the credit union will sink, it needs money coming in. And where does that money come from? Middle class people and ideally even the super rich. Some of them will think they’ll just save in the credit union, which is great, but that’s not where the credit union makes its money. Just like a bank, credit unions make their money from charging interest on lending. And that interest is what pays for the premises and salaries to run the credit union and to support outreach to support people on lower incomes with lower cost loans.”

And so Credit Champions was formed, a project to teach and support volunteers to go into their communities and workplaces to educate people about credit unions and encourage them to open an account and use their services.

Curiously Credit Champions has been funded by Barclays Bank. Presumably as part of its image cleansing process.

According to campaign group Move Your Money around 500,000 people have already moved bank accounts this year with a million people now signed up with a co-operative or credit union.

Dan Hopewell, director of strategy at Bromley-by-Bow community centre, who helped set-up the Credit Champions initiative with LCCU, admitted that even for the better off using a credit union for a loan will cost a little more than using a high street bank, but for those on the breadline it can save a whole lot more than that.